U.S. and Canadian equities closed lower on Monday for a fourth straight session, with Nasdaq leading declines, as investors shied away from riskier bets, worried the Federal Reserve’s tightening campaign could push the U.S. economy into a recession. All major sectors on the TSX ended with losses, with Algonquin Power and Utilities falling to its lowest point in more than seven years after an analyst cut his price target on the utility.
Major North American stock indexes have been under pressure since Wednesday, when Fed Chair Jerome Powell took a hawkish tone while the central bank raised interest rates. Powell promised further rate increases even as data showed signs of a weakening economy.
The S&P 500, the Dow Jones industrials and the Nasdaq have sold off sharply for December and are on track for their biggest annual declines since the 2008 financial crisis.
While U.S. Treasury yields gained Monday, investors ran from stocks, eyeing prospects of safer bets as they worried about the likelihood of a recession in 2023, according to Brian Overby, senior markets strategist at Ally.
“Investors are asking why do I want to take those risks going into 2023 with the Fed’s stance still aggressive when I can get such a good yield on the fixed income market place,” he said.
The lack of big earnings reports or economic data on Monday likely sharpened investors’ focus on economic fears and interest rates, according to Melissa Brown, Global Head of Applied Research at Qontigo in New York.
“It’s a knife edge between whether we’re going to teeter into a recession or have a soft landing. Is the Fed acting appropriately?” said Brown, who also noted that moves may be exaggerated as many investors take vacation around the end-of-year holidays.
The Toronto Stock Exchange’s S&P/TSX composite index ended down 242.52 points, or 1.25%, at 19,200.76, its lowest closing level since Oct. 25.
All 10 of the TSX’s major sectors ended lower, including declines of 1.9% for both the materials and industrials sectors. The earnings of cyclical companies tend to be particularly dependent on the strength of the economy.
“The current focus of investors has shifted from concerns about inflation and rising interest rates to an impending economic slowdown and a potential recession in the coming year,” said Brandon Michael, a senior analyst at ABC Funds.
The utilities group was down sharply, falling 2.2%, and heavily weighted financials ended 0.9% lower.
Algonquin Power fell 3.29% to $9.10, The stock has plunged since reporting disappointing quarterly results, with investors now concerned that a dividend cut could be around the corner. TD Securities analyst Sean Steuart on Monday cut his price target on the stock to US$7.50 from US$10.
Dye & Durham Limited was a bright spot on the TSX. The software maker’s shares climbed 17.2% after the company said it is significantly expanding its legal practice management capabilities with the addition of litigation workflow software.
On Wall Street, the Dow Jones Industrial Average fell 162.92 points, or 0.49%, to 32,757.54, the S&P 500 lost 34.7 points, or 0.90%, to 3,817.66 and the Nasdaq Composite dropped 159.38 points, or 1.49%, to 10,546.03.
The biggest decliners among S&P industry sectors were communications services, which fell 2.2%, consumer discretionary, down 1.7% and technology, which lost 1.4%. Energy outperformed, closing up 0.13% as the sole industry out of 11 to manage a gain.
Market heavyweights such as Apple Inc, Microsoft Corp and Amazon.com Inc created some of the biggest drags on the market.
Trading in Tesla Inc was volatile with the electric carmaker closing down 0.24% after falling as much as 2.8% during the session. This was after a Twitter poll that showed a majority of respondents want Tesla Chief Executive Elon Musk to step down as CEO of the social media platform.
Meta Platforms shares finished down 4.1% after the European Commission said it could impose a fine of up to 10% of the tech conglomerate’s annual global turnover if evidence showed an infringement of the EU’s antitrust laws.
L3Harris Technologies Inc lost 3.6% after the U.S. defense contractor said it would buy hypersonic engine manufacturer Aerojet Rocketdyne Holdings Inc for $4.7 billion. Aerojet added 1.3%.
Declining issues outnumbered advancing ones on the NYSE by a 2.80-to-1 ratio; on Nasdaq, a 2.63-to-1 ratio favored decliners. The S&P 500 posted 5 new 52-week highs and 20 new lows; the Nasdaq Composite recorded 66 new highs and 456 new lows. On U.S. exchanges 11.07 billion shares changed hands, compared with the 11.59 billion average for the last 20 trading days.
The Canadian dollar strengthened against its U.S. counterpart as investors bet that easing of COVID-19 curbs in China would boost demand for oil, one of Canada’s major exports, with the currency rebounding from a six-week low.
By late Monday, the loonie was up 0.3% at 1.3660 per greenback, or 73.21 U.S. cents, after trading in a range of 1.3624 to 1.3694. It touched on Friday its weakest level since Nov. 4 at 1.3705.
“The market is beginning to feel more constructive on China’s reopening,” said Adam Button, chief currency analyst at ForexLive.
“The next couple of months will be difficult but beyond that some oil demand is beginning to be baked in and that’s going to be a tailwind for the loonie.”
U.S. crude oil futures settled 1.2% higher at $75.19 a barrel as optimism over the Chinese economy outweighed concern over a global recession.
China, the world’s top crude importer, is experiencing its first of three expected waves of COVID-19 cases after Beijing relaxed mobility restrictions but said it plans to step up support for the economy in 2023.
Still, speculators have raised their bearish bets on the loonie to the highest level since October 2021, data from the U.S. Commodity Futures Trading Commission showed on Friday.
As of Dec. 13, net short positions had increased to 27,248 contracts from 22,090 in the prior week.
“The big risk next year is the housing market once again for Canada,” Button said. “This hawkish turn for central banks last week raises the prospect of higher rates for longer.”
Canadian home prices fell 1.3% in November from the previous month, marking a faster decline than in October.
Canadian government bond yields were mixed across a steeper curve, with the 10-year climbing 8 basis points to 2.897%.
Reuters, Globe staff
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